One reason people file New York bankruptcy is to avail themselves of the automatic stay to halt a foreclosure. Indeed, a well-timed filing can save a house, particularly if debtors are willing to commit to a chapter 13 plan that can allow them to cure defaults and resume their regular payments. However, for debtors who don’t want to go through chapter 13, there are some drawbacks to filing bankruptcy just to stop a foreclosure.
(1) Even for debtors who don’t seek the discharge—or even withdraw their cases before it becomes an issue—the penalties for a bankruptcy will still occur, particularly on credit reports. For this reason, sometimes it’s better to go all the way to discharge for debtors who owe more than just mortgage payments and the house can’t be saved anyway. Obviously credit scores shouldn’t weigh too much on a decision to file bankruptcy, but they shouldn’t be ignored either.
(2) Sometimes people file bankruptcy prematurely. Missing a payment or two won’t trigger a foreclosure in New York. It takes a series of chronic missed payments for the mortgagee to initiate the process. There might be better options at the initial delinquency stages that precede a foreclosure. It’s also true that New York foreclosures take longer than they used to.
(3) Speaking of better alternatives: Debtors who are confident they will be unable to keep the house on the current mortgage can try to refinance it, obtain a mortgage modification, short-sell it, offer the deed to the bank in lieu of foreclosure, or even mediate with the lender. A bankruptcy lawyer can help debtors maximize these options. Sometimes debtors can cure the mortgage delinquency if the missed payments were due to some kind of mix-up.
(4) It’s also important to not file bankruptcy too late. Once the foreclosure sale goes through it cannot be undone. Bankruptcy prevents the sale before it occurs, not the eviction afterward.
(5) For homeowners who don’t want to go the chapter 13 route, bankruptcy itself won’t solve the problem of missed mortgage payments. Homeowners still have to decide what to do about the house, such as the options discussed above. It’s also possible that the lender will try to lift the automatic stay and complete the foreclosure.
The point is that bankruptcy is a tool to fight foreclosure, but it’s not a long-run solution—and it must be timed appropriately. This requires consulting with an experienced New York bankruptcy lawyer before the problem gets worse or homeowners make easily avoidable mistakes.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
